Few takers for pioneering China bond ETFs in early days

NEW YORK, March 5 (Reuters) - Exchange-traded funds designed
to let investors play China's bond markets, which are mostly
closed to foreigners, are facing a slow start amid concerns
about mainland issuers' credit quality, high property prices and
the slowing economy.

At more than $5 trillion, China's onshore fixed-income
markets are outranked only by the U.S. and Japanese markets and
offer attractive rates.

But trading volumes for three Chinese bond ETFs launched in
late 2014 have dwindled, and the ETFs are drawing assets at a
much slower pace than a Chinese equities ETF run by Deutsche
Bank, which since a November 2013 launch has attracted more than
$1 billion in assets.

"If they were launched when there was not a global slowdown,
from an economic perspective, it might be a different story,"
said Dave Mazza, funds research chief at State Street Global
Advisors.

Over the past 12 months, the Standard & Poor's China
Composite Select Bond Index has gained 8.47 percent. So far in
2015, the China index is up 1.9 percent. Total 2015 returns from
the new ETFs range from zero to 1 percent.

Dennis Hudachek, analyst at etf.com in San Francisco, said
it may take a while before investors are comfortable with
mainland China credits, even among investors with holdings in
the $100 billion 'dim sum' market of yuan-denominated bonds
issued in Hong Kong.

Van Eck's ChinaAMC China Bond Fund was the first
onshore debt ETF, launched in November. It tracks the ChinaBond
China High Quality Bond Index of fixed-rate, renimbi-denominated
debt. Its net assets total $24.5 million, according to Lipper
data.

Trading volumes peaked at 108,000 on Nov. 24, and have since
declined more than 90 percent to well under 10,000 shares a day,
according to Thomson Reuters.

KraneShares EA Fund China Commercial Paper ETF has
about $22 million in assets, and trades less than 1,000 shares a
day. The $48 million Global X GF China Bond ETF, also
launched in November, averages volume of 60 shares a day.

By comparison, the Deutsche X-trackers Harvest CSI 300 China
A-shares ETF, which debuted in November 2013, averaged
235,000 shares daily in the last month.

Deutsche is considering a China mainland bond ETF, according
to Institutional Investor. A Deustche spokeswoman declined to
comment.
(Reporting by Michael Connor in New York; Editing by Richard
Chang)